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Austin Frakt reviews Modern Principles: Macroeconomics. Austin's blog, The Incidental Economist, covers game theory, investment planning and health economics among other topics.
Here is an updated version of my paper Life Savings Incentives: Consequences, Costs and Solutions to the Organ Shortage. Did you know that it is legal to offer compensation for donating a whole body (e.g. for research purposes) but not legal to compensate an organ donor to save a life? Crazy. Alvin Roth links to a survey of transplant surgeons indicating increasing support for legalizing some forms of compensation (Roth also links to a recent radio interview with yours truly.)
House built from Lego, yes really.
Kidney Donor Chains
Virginia Postrel has an excellent piece in the online Atlantic on the shortage of transplant organs, it includes a very good discussion of both the promise and limitations of kidney swaps and donor chains. Imagine that Mrs. Smith and Mr. Jones each need a kidney transplant. Mr. Smith is willing but due to an incompatible blood type unable to donate a kidney to his wife. Similarly, Mrs Jones is willing but unable to donate a kidney to her husband. In a kidney swap, Mr. Smith donates to Mr. Jones and Mrs. Jones donates to Mrs. Smith. Everyone is happy.
Donor chains extend this idea. We start with an altruistic donor willing to give to anyone – by careful arrangement it's then possible to produce many transplants. Recently, a single donor led to a chain of ten transplants!
Despite the promise of these techniques they are being underutilized. Amazingly, the National Kidney Registry, which coordinates swaps and chains, has donors who are waiting to give. A clear reminder that $500 bills aren't always picked up as quickly as we would like.
Even the maximal use of swaps and chains won't solve the crisis, however. For that we are going to need better incentives to encourage more donors.
Dutch Treat
THE Dutch health minister, Ab Klink, is considering a recommendation to offer
free health insurance for life to anyone who donates a kidney for transplant.
The award would be quite valuable, worth about $1500 a year or $24,000 in present discounted value (30 yrs, 5% discount rate, no increase in health care costs). Becker and Elias predict a large increase in organ supply at $15,000 so the Dutch are in the ballpark for a good test. More here.
Thanks to Dave Undis of LifeSharers for the pointer.
Prediction Markets: Some assorted news
- Wrap-up of an interesting conference run by Consensus Point (HT: Midas Oracle; Disclosure: I’m an occasional advisor to Consensus Point). Robin Hanson tells me that he is now (back to) bullish on prediction markets – he saw real evidence of real firms implementing prediction markets and taking them seriously.
UPDATE: Another nice summary available here. - How to bet real money, in a country in which real money markets are illegal? www.bet2give.com allows you to bet your charitable donations against mine. You win the bet? My donations go to your charity. I win the bet? Your donations go to my preferred charity. Brilliant. Incentives, charitable donations, and legal protection – all good things. A longer description here. (HT: Emile Servan-Schreiber of NewsFutures)
- The ’08 race at InTrade: Latest trading suggest Hillary is a strong favorite to win the Democratic nomination (66% chance). The Republican primary is a true three horse race. Most puzzling (to me): How is Obama only a 16% chance? Some say he is really running for VP, but the markets suggest he is only a 27% chance to win the second spot on the ticket. My tip: Buy Obama for Prez at 8%.
[Full disclosure: I’m an occasional advisor to both Consensus Point and NewsFutures]
The virtues of inegalitarian American philanthropy
This fascinating article raises the question of whether charity is worthwhile and how charity — "imposing" the desires of the rich on social priorities and wealth redistribution — fits a theory of social justice. In particular, why should the charity of the wealthy receive such significant tax breaks or even be seen as morally legitimate? Henry Farrell adds much more.
I am a fan of the tax break for American philanthropy for several reasons:
1. Organized religion is the biggest beneficiary. Religious organizations help poor people, help shape a unique and vital American ethos, and encourage people to have more children. The demographic effects alone probably makes this self-financing. ($40 billion in foregone revenue is one estimate.)
2. The arts receive about five percent of U.S. charitable donations. I am more than willing to stomach this degree of anti-egalitarianism in the non-profit subsidy, and yes we do get more beauty for it. Furthermore the alternative of more direct government arts funding would not work out well in the relatively Puritan United States, even if you think it has worked well in Europe.
3. Philanthropy for higher education is a major reason for American strength. Note that American higher education a) benefits the entire world, and b) is a major reason why we are richer than Western Europe (wasn’t there a recent NBER paper on measuring this effect?) The tax break is a politically acceptable way to subsidize elite intellectual activities — which benefit virtually everyone — yet without having government control those activities.
4. Allowing and encouraging people to give away their money causes them to work harder. Demonstration effects spread the power of this subsidy by creating social networks which favor philanthropy.
5. The general proliferation of non-profit institutions makes America a much more innovative and diverse place, intellectually and otherwise.
6. Relying so much on private philanthropy chips away at the dangerous attitude that there are clearly defined social priorities to which everyone must pay the same heed.
But do read the NYT article and Henry’s post for very different perspectives.
I thank a loyal MR reader for the NYT pointer.
The Price is Right
One of the most bizarre aspects of the organ shortage is that it is illegal to pay for cadaveric organs for use in transplants but it is legal to pay for cadavers. That’s right, it’s illegal to pay people to donate their organs for the purpose of saving lives but medical schools can pay people to donate their bodies so that plastic surgeons can practice their nip and tuck.
In a remarkable paper forthcoming in Cato’s Regulation and reported in the Washington Post, economists David Harrington and Edward Sayre take the argument one step further. Medical schools regularly offer to pay funeral expenses for whole body donation. So does the offer of payment deter altruistic donation and decrease the supply, as we have been told could occur if we were to compensate organ donors? Of course not. In fact, Harrington and Sayre note that the offer to pay funeral expenses is worth more in states where the funeral industry is heavily regulated and thus prices are high and, just as predicted in Econ 101, the supply of whole body donations is higher in those states.
It’s time to lift the price control on human organs, relieve the shortage and save lives.
How a proto-Economist Runs for Charity
Back in high school we had a run for charity, x laps around the track for so many dollars per lap. I forget the charity but showing early signs of an economic mind, or perhaps a lazy body, I decided that it would be much more efficient to get the money and avoid the running (today, I would say avoid the rent seeking). Thus, I solicited donations with the promise that I would run just one lap.
Unsurprisingly, the other students were most displeased when I sauntered around the track finishing just as everyone else was beginning to work up a sweat. More surprisingly, the charity organizers didn’t like my methods even though I raised a lot of money.
I had to go to graduate school in economics before I really began to understand why. Eric Crampton, subbing for Bryan Caplan at EconLog, has the details.
By the way, its been said that crazy people go to graduate school in psychology in an effort to understand themselves. Perhaps the socially obtuse go to graduate school in economics for reasons that are somewhat similar. See here on yours truly and also Greg Mankiw’s related comments.
Newspapers as non-profits?
A newspaper company, like a public broadcaster,
could be organized as a not-for-profit, tax-exempt corporation. It
could still sell papers and advertising, it could still develop new
Internet revenues, it would still pay market wages and salaries (or
maybe better), it could re-invest in improving its own staff and
facilities and operations, it just couldn’t make a profit. And it
wouldn’t pay taxes or dividends.
Here is more. As newspaper ads move to the web, draining a key source of revenue, I see a few options:
1. Subscription finance with high prices and few ads. A bit like the Financial Times. Of course this means fewer newspapers and fewer newspaper pages. On the plus side, fewer articles would continue on other, distant pages.
2. Sleazy tabloids. But the competition with the Internet remains.
3. Some clever newspaper coup to take over Web processing of commercial information and leapfrog over ebay and Craigslist.
4. Web products evolve into customized, print-on-demand newspapers. A some major newspapers survive by going the hybrid route, or by merging with their web competitors. "What is a newspaper?" becomes a question of degree and we needn’t mourn the lack of pure newspapers.
5. Non-profits would take in revenue and also raise donations by selling access to social and political networks. What would a date with Maureen Dowd go for?
6. Extremely partisan, low-cost "rag" newspapers, akin to 19th century U.S. experience, and paid for by subscription. Advertisers seek to offend nobody, and thus exert a centrist influence over newspaper content.
I place virtually no weight on option #3. Comments are open.
How to choose a charity
MR reader Jeffrey Drucker writes:
I’ll be graduating college in just a few weeks and entering the real world. That is I’ll be a salaried employee making all budgetary decisions for myself. Aside from the necessary components of spending, saving, and repaying my college loans I’d like to set a portion of my earnings aside for charitable donation. I’ve always thought that charity was a crucial element of any caring libertarian’s mindset. Now that I will be able to spend my own money, I wondered if you could provide any insight into the economic considerations of charity.
Obviously, the decision to donate is based on personal considerations and evaluations of the relative merit of different organizations. But economically is it more sensible to donate to a wide number of worthy causes or champion just one. Should I focus on issues closer to home or those who are in the most need the world over? How large a percentage of my income is it reasonable to donate, what issues should I consider (value of investment opportunities, lifetime consumption)?
Putting political and intellectual non-profits aside, here are some principles for purely charitable giving:
1. Published information on budget ratios devoted to programs and fundraising expenses is not reliable. Many charities manipulate the data.
2. Consider neglected but long-simmering problems; read my earlier analysis of whether you should focus on the crisis of the day.
3. Hardly anyone gives enough to charity and you won’t either. Pick a cause or causes you will become addicted to. Tell others you won’t back down from your cause, so that you will lose face if you do.
4. My preferred approach is pure cash transfers to rural Mexicans, vis-a-vis Western Union. You don’t get the tax break but administrative expenses are very low. Think of Western Union as a for-profit charity.
5. In-kind aid sounds inefficient to the economist, but the commitment may make you happier. You are wasting most of your time anyway.
6. Don’t give money to beggars, the explanation is here.
The comments are open for other suggestions. Analytical principles are especially welcome.
Paying for Kidneys
In a new paper, Gary Becker and graduate student Julio Elias estimate that for a price of $15,000 the shortage of kidneys could be eliminated from live donors. The risk of death to a live donor is no more than 1 in a 1000. Combine this with a value of life estimate of $3 million and add in some costs for time off work and so forth and you get the Becker/Elias figure of $15,000.
$15,000 seems too low to me but it probably would since my income is above average. As a robustness check, the authors note that in India a kidney can be had for about $1000 and US per capita income is about 15 times that in India so $15,000 looks to be in the right ballpark. A similar calculation from Iran, where kidney sales are legal, is also consistent. In anycase, even if they are off by a factor of 2 the point is well taken that for a modest sum many lives could be saved. (In fact, dollars would be saved also because transplants are cheaper than dialysis.)
Becker and Elias have a useful response to (so-called) moral objections. Take any argument against kidney sales and apply it to the volunteer army. Do kidney sales "commodify the body?" Perhaps, but then the volunteer army commodifies life. Would kidney sales eliminate altruistic donation? As the example of Pat Tillman and many others demonstrate people still volunteer for the military for non-monetary reasons. Are there difficulties for donors to calculate risks? Again, perhaps, but these also apply to joining the military (and if so we could allow for a cooling-off period for both donating an organ or joining the military, as we do in some states for auto purchases).
If you are not in favor of the volunteer army then Becker and Elias don’t have any knock down arguments but I suspect that many people who are against kidney sales also favor the volunteer army and for these people Becker and Elias are posing a consistency challenge.
US Sperm Exports Explode; Canadians Upset
The US is a world leader in sperm exports primarily because sperm banks in the U.S. are run on a for-profit basis. As a result, US sperm is reckoned to be of high quality (we always knew this didn’t we?) particulary because the US version comes with a background on the vitals of the donor. Denmark also exports a lot of sperm because of high standards and demand for that blond, blue-eyed look.
Exports to Canada have increased in recent years because of a scandal involving poorly screened Canadian sperm. Canadians also import a lot of US eggs. The Canadian government, however, is apparently miffed as a new law is being readied that would forbid donations involving a paid donor. The law would not only make paid donation illegal in Canada it would make it illegal to use any paid-for sperm. Canadian couples seeking fertility options will suffer and who will benefit? I cannot think that this law is anything but spiteful and ridiculous. Is paying for sperm an original sin? As with other areas of Canadian medicine (see Tyler’s posts here and here), the rich will now travel to the United States for treatment.
Aside: The Canadian Health Official quoted here is ignorant or disengeneous when she says “We don’t buy or sell blood, or organs or tissues.” In fact, Canada also imports a lot of US blood plasma. Plasma takes longer to donate than straight blood and as a result altruistic donation rates are low and much of the world relies on paid-for US plasma for its life-saving properties. Similarly, donating eggs is not nearly as much fun as donating sperm so altruistic donation of Canadian eggs is unlikely to make-up for restrictions on the import of paid-for US eggs.
Thanks to Eric Crampton for the seminal email.